Crowdfunding and Taxes

As today is tax day, it seems somewhat appropriate to discuss taxes. But I want to discuss a little-known tax issue that may become a big issue, either currently or in the future, for some of our readers.

Crowdfunding is a growing funding resource for many farmers and ranchers just starting out. Crowdfunding is when a person or organization makes a pitch for funding on an Internet platform such as Kickstarter, Barnraiser, or many others (see a comprehensive list here). The general idea is to have a lot of small donations from your “crowd” to fund a project.

But is there a potential downside? Yes, from a tax perspective there could be. According to this New York Times article, IRS rules require companies that process payments for crowdfunding sites to send a 1099-K form to any customer for whom they register 200 annual transactions totaling at least $20,000.

As the Times points out, this a tax issue that could be compounded by timing. If the crowdfunding occurs in a year with little to no business expenses to offset the generated income, there could be a greater than anticipated tax bill due.

But there is also the state tax angle, more specifically, sales tax. Sales tax varies state-to-state and, in some cases, situation to situation. Generally speaking, however, sales tax is due for anything sold to an in-state buyer. Sales tax is applicable regardless of the number of donors or amount raised.

In sum? Crowdfunding may be a wonderful opportunity for your farm. But be aware of the potential tax implications before jumping straight into a fundraiser.

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This website and blog is for educational and informational purposes only. Please contact legal counsel in your state (or contact us to determine if you qualify for Legal Aid of Nebraska's services) to discuss your specific questions.

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Legal Aid of Nebraska's Farm and Ranch Project is the oldest continuously operating farm legal services program in the United States. Due to a grant from the USDA's National Institute of Food and Agriculture Beginning Farmer and Rancher Development Program, Legal Aid of Nebraska has the opportunity to further its range of services to Nebraska and South Dakota farmers and ranchers.